In my last post I talked about how the media can influence market confidence and how media coverage of the property market seems more positive now than it has been for a long time.
As example I quoted the Daily Express of 1st April which reported that the Centre for Economics and Business Research is predicting an increase in average UK house prices of 20% by 2018.
The two big questions we need to ask are ‘is it true’ and, if it is true, ‘is that good or bad news for us as buy to let property investors?’
We can start to answer the first question by looking at historical perspectives. Although the Daily Express headline was “House Prices Set To Soar”, over a five-year period a 20% increase is not that impressive when you think that the historical average has been around 8% since the early 1950s.
In fact, 20% over the next five years is the equivalent of around 3% per annum and although the market is still currently around 11% below its peak (in terms of the UK national average), and most of us outside of London and eth South East have got used to a ‘flat-lining’ market, 3% per annum doesn’t seem an unbelievable figure.
So perhaps a subsidiary question is, ‘how likely is this?’
At the moment the major house price indices certainly suggest it’s possible. Nationwide tell us that prices have increased in three of the last six months and that there have been no monthly falls since October 2012.
Halifax report that prices are up 1.1% on the same period last year.
This week the RICS (Royal Institution of Chartered Surveyors) tell us that their member estate agents report house sales reached a three-year high in March, and that the number of sales has increased in each of the last three consecutive months.
This all seems very encouraging and some commentators are suggesting that things will get even better when <i>Help to Buy</i> is introduced (the latest government initiative that was announced in the budget).
This is all good news but the truth is there won’t be a sustained recovery until mortgage finance is easily and readily available. Until then any recovery could be snuffed out very quickly.
On a positive note the latest Bank of England credit survey report indicates that banks are happier about making money available for mortgages than they are for loans to small and medium-sized businesses. The suggestion is that banks consider property to be less risky. This in itself could indicate a change of sentiment and that perhaps banks are slowly moving towards making mortgage credit more easily available.
Some commentators suggest that this is a positive effect of <i>Funding for Lending</i>. This may be true but as far as I can see funding for lending has helped to reduce mortgage rates but hasn’t encouraged the banks to loosen other terms such as the amount of the deposit a borrower has to put down.
Hopefully Help to Buy will resolve this as the government have effectively offered to underwrite loans with LTVs at between 80% and 85%.
Time will tell but at least one thing we can say is that most news from the property market seems to be positive at the moment.
In my next post we’ll look at the evidence for a property market recovery. If, like me, you’re an ‘established’ buy to let investor you’ll want to know what the prospect for your properties are.
On the other hand, if you are looking at buy to let and wondering if it’s right for you, what’s happening in the property market at the moment could help to shape your decision.
Here’s to successful property investing.